However there are some ways that we can increase the success of Order Flow Trader by filtering out some of the weaker signals. Here are a few tips & tricks to bare in mind when trading using Order Flow Trader.
1. Trade the Signal Bar Break
You will probably have heard this quite a lot if you’re familiar with my posts & videos as this is a favourite method of mine. Simply put, instead of just executing the trade once the signal bar has closed I look to see some continuation in price before entering.How do we identify continuation?
If we see an OFT buy signal on a candle, I then want to see price break the high of the signal candle before executing my long trade and vice-versa for sell signals. This simple adjustment to how you use OFT can filter out a lot of weaker signals.
Look at the example below, we can see two great winning trades and one losing trade. Using the “bar break” method however, we avoid the losing trade.
2. Second candle close
If we think of executing on the signal candle close as being aggressive and entering on the signal candle break as being more conservative, then this approach is more conservative still. The idea here is not only to look for continuation in price but also confirmation.How do we identify confirmation?
If we see an OFT buy signal on a candle I then want to see the second candle close above the high of the signal candle to execute my long trade and vice-versa for sell signals. So not only does price need to break the high of the candle, it also needs to close above it.
Look at the example below. We can see that by waiting for the second candle to close above the high of the signal candle (for buy signals) and below the low of the signal candle (for sell signals) we were able to avoid three weak signals and catch a nice winner.
3. Think About The Signal Candle
Some traders don’t have the time to spend in front of the charts to implement some of the other methods we’ve looked at, so here is a really quick method for identifying the signal as strong or weak.One of the best ways to filter out weaker signals is simply to stop and think about the price action on your chart at the time of the signal. Now there are all sorts of different candlesticks we could examine here but I want to share with you just one, that through alot of time spent researching, trading and teaching the use of the indicator I feel is most important.
If we see an OFT buy signal on a bearish pin bar, avoid the signal. If we see an OFT sell signal on a bullish pin bar, avoid the signal.
Now this is my own personal preference for using OFT. There are occasions when we see an OFT buy signal and a bearish pin bar and price trades higher in line with the signal. This is fine, I accept that I can’t always be right, but what I always try to do is refine my methods and refine my trading to improve my success, so this is a method I choose to use.
Look at the example below. We can see that we get an OFT sell signal and a bullish pin bar, and price trades higher.
As I said, this isn’t always the case but I have found more often than not, this is a reliable way of filtering signals.
So hopefully this article has got you thinking a bit more strategically about how to trade the OFT signals. There are of course a vast amount of different period setting you can use to change signal frequency and to some extent strength, but hopefully these methods will help you no matter which time-frame or signal period setting you use.
Editors’ Picks
EUR/USD trades weak below 1.0800 amid Good Friday lull, ahead of US PCE
EUR/USD remains depressed below 1.0800, as traders lack directional impetus amid minimal volatility and thin liquidity on Good Friday. The pair keenly awaits the US PCE inflation data and Fed Chair Powell's speech for fresh hints on next week's price action.
GBP/USD holds steady above 1.2600 as markets stay calm on Good Friday
GBP/USD trades sideways above 1.2600 amid a typical Good Friday trading lull. A broadly firmer US Dollar could keep any upside attempts limited in the pair ahead of the US PCE inflation data and Fed Chair Powell's appearance.
Gold ends Q1 2024 at record highs, what’s next?
Gold is sitting at an all-time high of $2,236, lacking a trading impetus amid holiday-thinned conditions on Good Friday. Most major world markets, including the United States are closed in observance of Holy Friday, leaving volatility around Gold price highly subdued.
Ripple's move above this key level could trigger nearly 50% rally for XRP
Ripple price has overcome a critical resistance level and flipped into a support floor on the weekly time frame. This development happened while XRP tightly consolidated for roughly 250 days.
US core PCE inflation set to ease in February on month as Federal Reserve rate cut bets for June mount
The core Personal Consumption Expenditures Price Index is set to rise 0.3% MoM and 2.8% YoY in February. The revised Summary of Projections showed that policymakers upwardly revised end-2024 core PCE forecast to 2.6% from 2.4%.
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